Synthetic assets are just a part of DeFi, which imitates traditional finance but moves everything on the chain. Although the products traded are still the same: stocks, gold, and derivatives, the logic behind them is completely new.
The creation of synthetic assets brings the liquidity of traditional financial instruments into the DeFi world. Anyone can issue new synthetic assets and conduct transactions on the chain, using smart contract technology to replicate all traditional products. It makes real-world finance and decentralized finance more scalable and efficient. In this article, we will look at several major synthetic asset platforms, compare and contrast their differences, and introduce the Duet protocol-a brand-new synthetic asset protocol with a “hybrid mechanism of over-collateralization and algorithm linkage”. Duet combines the stability of overcollateralization and the agility of algorithmic linkage. It greatly improves the user’s financial efficiency and stabilizes the performance of the system.
As of July 19, 2021, Synthetix has the highest total locked-up value (TLV) and 24-hour transaction volume among all listed projects. Although it does not have the largest number of active addresses and is only launched in Ethereum, Synthetix’s general The trading strategy has attracted more organizations than ordinary Defi retail users.
Similar projects may attract more organizations. UMA seems to have a higher barrier to entry for retail investors, but according to UMA’s user base, it should be the most stable compared to the other three projects.
Linear is the only company that is listed on Binance.com and has launched an agreement on both Ethereum and Binance Smart Chain. A relatively good balance between trading volume and users has been maintained, and the first step of seamless cross-chain synthetic asset transactions has been taken, attracting a large number of mature DeFi players in Ethereum, and at the same time reducing transactions through Binance Smart Chain. Costs improve transaction efficiency. However, the total transaction volume of BSC is smaller than that of Ethereum.
The following chart respectively shows the distribution of synthetic asset minting on Synthetix and Linear.finance, in which cryptocurrency assets account for the absolute dominant proportion.
The Mirror protocol currently only provides US equity assets, and we have seen a significant difference between its trading volume and TVL (low speed).
We can speculate that the potential market for traditional financial traders does exist, and decentralized synthetic assets can alleviate some possible pains in the real world. However, compared with the speed of traditional encrypted assets, they may not be high-frequency trading products.
Synthetic assets and their traders need a more targeted and complete logic.
Synthetic (SNX): Synthetic is long, iSynths is short
Once you participate in the Synthetix system, you play the role of depositor, caster, and counterparty, and assume the underwriting risk of the overall debt of the system. This means that if the user’s synthetic assets appreciate, your debt will increase.
Deposit SNX (750%) into SNX and get sUSD, buy other synthetics at market prices, there are transaction fees, but you can get SNX betting rewards and fee reductions.
ETH (150%) deposit ETH and borrow sUSD/sETH directly, without transaction fees or any rewards, because they do not bear the risk of the debt pool
renBTC (150%) deposits renBTC and borrows sUSD/sBTC directly, without charging fees or any other rewards, because they do not bear the risk of the debt pool.
Current holders: 80,399 has no order book, which means that all transactions are executed against contracts (P2C). This provides unlimited liquidity for all collaterals in the system, while on-chain transactions that do not require permission have zero slippage, and a fixed interest rate transaction fee is charged.
However, all synergy holders are the counterparties of all synergy transactions, which exposes all users to the risk of volatility in the entire market.
Synthetix has about 1,400 daily active users in Ethereum , with an average number of transactions of 7,000 , and the only active interactor in history exceeds 190,000 . As one of the older protocols, this has a certain meaning.
Mirror image (MIR), which provides short positions for the reflected asset price direction
Trader (trader): buy and sell between mAssets and UST.
Miner (Minter): Enter the mortgage debt position (CDP) through UST to obtain newly minted mAsset tokens.
Liquidity Provider: Add the same amount of mAsset and UST to the corresponding Terraswap pool to increase the liquidity of the market.
Stockholders (Staker): Hold shares of LP tokens (using mortgage contracts) or MIR tokens (using Gov contracts) to obtain MIR token holding rewards.
Qualified collateral (mortgage rate)
Current holder: 24,474 For Mirror, most of the active addresses are on Terra (Luna), which does not have a total address available for use. The latest 24H transaction count on Terra is 24,462, which is almost 100 times the Ethereum protocol count, so the final total number of token holders should be much more than our current number.
Mirror launched a UST fund pool on PancakeSwap on Binance Smart Chain (BSC) in January 2021. Although the coinage protocol has not yet been launched on BSC, the total locked-up value of the MIR fund pool exceeds $100 million. To date, it has more than 24K active users and more than 3M transactions. MIR is listed on Binance on April 19, 2021, which helps increase MIR traffic.
Transactions are handled by a liquidity pool, which reduces the personal role risk of active players in the ecosystem compared to Synthetix, but increases the capital required to provide liquidity. This mode enables Mirror to track any different assets in the real world without limitation, and it is less risky for miners.
Universal Market Access (UMA)
a) Token sponsors lock up funds in smart contracts to support users who minted the value of synthetic tokens.
b) Liquidators monitor and liquidate under-collateralized positions.
c) Disputers use UMA’s priceless financial contracts to monitor contracts to determine whether the liquidation is valid or invalid.
d) Data Verification Mechanism (DVM) introduces a simple economic security framework to evaluate oracles to ensure that the cost of destroying DVM will exceed the potential profit. In this way, the economic motivation to destroy DVM is eliminated first.
e) UMA token holders help to operate DVM and get rewards by voting on price requests for financial contracts that use DVM, and managing the UMA ecosystem by voting on parameter changes and approving system upgrades.
- Eligible collateral
There are 43 types of collateral.
- Holder to date
UMA currently only focuses on Ethereum, but is expanding to enter other EVM chains. As can be seen from the figure below, since October 2020, the daily active address of UMA has remained stable.
Linear Finance (LINA)
a) LINA + other cryptocurrencies In order to generate a synthetic asset, users need to deposit a mixture of LINA and other cryptocurrencies. The ratio must be 80:20, of which 80% of the collateral must be LINA, and the other 20% must be other cryptocurrencies.
Holders to date: 12,840
Linear.finance shows a similar level of usage, similar to that of Ethereum and Binance Smart Chain.
When LINA was on the Binance online market, active addresses increased significantly on both Ethereum and Binance Smart Chain, but then returned to normal, which is similar to the effect of MIR after its listing. It seems that even if DeFi is popular, most active contributors still tend to choose major centralized exchanges.
All in all, the current synthetic asset agreements are facing similar bottlenecks, such as restrictions on active users, capital efficiency, collateral liquidation risks, asset price pegs, and hard caps on synthetic assets. Duet is determined to introduce an innovative approach to more assets in the cryptocurrency field.
What is the Duet Protocol and why is it different?
Duet is a synthetic asset protocol based on a hybrid mechanism (over-collateralization and algo-pegged model), which implements traditional real assets (flat assets) and high-growth encrypted assets (ups Transfer assets, Sharp Assets).
Compared with the above-mentioned existing methods, Duet provides a unique design to optimize coinage and transactions.
Openness and user-friendliness: Compared with Binance or FTX CM equity method, on-chain synthetic asset casting is easier and friendly for investors, without entry barriers, process costs, or single spot risks.
Multiple collateral positions: Synthetix and Linear adopt a single asset deposit and shared debt method. In contrast, Duet selected multiple collaterals and separated the CDP, which reduced the risk of coin minters and improved scalability.
Asset diversity and compatibility: Compared with MakerDAO’s DAI and Mirror’s UST, Duet accepts various types of synthetic assets, embraces a wider ecosystem, and supports Ethereum, BSC and other EVM-compatible blockchains.
Compatibility. Compared with a perpetual agreement that only supports long or short positions, Duet provides transferable dAssets that can be used in other DeFi agreements.
Comparison of Duet and competitors:
The first difference is openness and user-friendliness . Compared with Duet’s competitors, the currently underdeveloped core coinage module has an over-collateralization model similar to Mirror and Synthetix, and Duet accepts multiple cryptocurrency assets as collateral. Compared with their opponents, most of them only accept tokens issued by themselves as collateral, which is very unfriendly, because miners buy system tokens as collateral and have to bear additional risks, not to mention that if it is the Synthetix model, everyone shares the debt. Pool, the foundry cannot predict how much money he will owe the system . Duet also integrates the Farming module, which automatically increases the interest of the user’s mortgage and reduces the user’s migration cost .
The second is capital efficiency . Duet has a unique algorithmic pegging mode that allows users to burn DUET tokens without having to take out collateral to create synthetic assets. Under this model, the mint will not bear any risk of forced liquidation, and the capital utilization rate reaches 100%, which completely solves the problem of capital efficiency.
The third is the type of assets . Based on our model design (this is a game situation between all Duet holders and synthetic asset holders), new synthetic tokens can be easily created in the system, but our competitors such as Mirror are still just Imitating the real existing underlying assets may be less attractive to cryptocurrency players to some extent. For example, we can not only create leveraged or reverse tokens, but also create tokens that track financial indexes, such as the VIX index. However, in Mirror, we just imitate VIX to track ETFs, and there are management fees and position rolling fees, that is, the inherent value continues to decline. , This is not a good volatility hedging tool.
The last one is the overall design . The goal of Duet from the very beginning is not a simple financial application, but a parallel world that enables real-world assets to be minted, reorganized, and rebuilt, and allows users to allocate capital to any major asset from anywhere. Synthetix’s progress in real-world asset synchronization is quite slow for some reason. They only have very few synth stocks. We will have our own swaps, lending, cross-chain synthetic asset liquidity aggregators, leveraged arbitrage agreements, insurance pools, clearing fund agreements, automatic compound interest tools, and more useful chain agreements around our synthetic assets. These Known as the DuFi (Duet Fi) ecosystem.
What is Zerogoki and why is it an experimental synthetic asset protocol?
Zerogoki is an experimental protocol from the Duet protocol. It only has the Lite-minting and algorithm pegged modules of the Duet protocol. Zerogoki provides a playground for various assets and experimental mechanisms to face the test of the real trading environment.
Zerogoki is a transliteration of “zero machine” in Japanese, which represents the experimental model Unit-00, and its token REI is the pronunciation of “zero (れい)” in Japanese. Zerogoki is a leveraged token minting platform deployed on Ethereum. Based on an algorithmic linkage mechanism, it can provide users with leverage tools for traditional assets such as foreign exchange, gold, and bonds. Users can use the platform token REI to mint leveraged tokens, or use the synthetic USD-zUSD of the protocol to directly purchase leveraged assets.
Like Kusama ( KSM ) and Polkadot (DOT), Zerogoki is open and runs as an independent project. The purpose of Zerogoki is to undertake a certain stress test function of Duet . Due to the different mechanism design, its risk and profit structure are obviously different. Synthetic assets are only generated by destroying the agreement asset-REI, and selecting leveraged tokens with large fluctuations as listed assets to increase the pressure of system testing. At the same time, the lower-cost Ethereum mainnet is used to test whether Duet can run smoothly in harsh environments.
REI and zUSD are mainly for traditional investment subject derivative assets, providing many original investment subjects for the cryptocurrency market, such as: zGOVT U.S. Treasury ETF 20 times, zXAUUSD 10L gold spot 10 times, zEURUSD 20L EUR/USD 20 times and other derivatives. Duet is currently mainly used for synthetic assets in US stocks. Zerogoki will continue to maintain and operate stably. If the subsequent Duet’s synthetic asset module protocol is upgraded, it will also be tested on Zerogoki first.
Obviously, Mirror improved the collateral logic to make it more friendly to retail investors and took a more active approach than Synthetix. Considering the MIR listed on Binance, the launch of the UST pair of mAssets on PancakeSwap may help Mirror establish a virtuous circle between BSC and Binance, and attract new DeFi users.
In addition, oracles is the core of all synthetic systems, and the accuracy of its information is crucial, because it determines whether CDP has enough collateral assets to be locked, otherwise it will trigger liquidation. Mirror launched UST pair at Terraswap Price to increase the liquidity of assets, but this did not solve the large gap between the AMM price and the real oracles price. For example, mGOOGL, its Terraswap Price is 2484.93 UST, which is about 0.56% difference from the real oracles price, which shows that this model is still worth more design improvements.
The design of synthetic assets is getting stronger and stronger. We believe that user-customized and cross-chain compatible logic will build a more sustainable synthetic Defi world.
Zerogoki is an innovative version of Duet that supports a larger category of financial assets, including cryptocurrencies, commodities, foreign exchange, bonds, stocks, and financial indexes. Furthermore, Zerogoki will also provide novel financial derivatives, provide users with more coinage or trading tools, and provide more money-making strategies for other participants in the project.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/one-article-to-understand-what-are-the-differences-between-the-most-popular-synthetic-asset-platforms/
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